Coinbase is allowing customers to make big trades in the shadows in attempt to lure big Wall Street traders to its exchange
- Coinbase, the cryptocurrency trading firm, is supporting block trades and opening up an office in Chicago, several people familiar with the matter tell Business Insider.
- Block trades, which are made off an exchange's order book, are popular among large institutions looking to trade without impacting the market.
- Supporting block trades could lure large institutions and traders to Coinbase's institutional-grade exchange, GDAX.
- Coinbase is also opening an office in Chicago, a city known for its large number of trading firms, to lure in talent to help build-out GDAX's trading tech.
Coinbase, the San Francisco-based cryptocurrency company, is making big moves to shake-off its scrappy startup roots and transform into a first-class trading firm.
The firm is starting to support block trades for its clients, people familiar with the matter tell Business Insider, showing that Coinbase is serious about competing with rival cryptocurrency exchange Gemini and other over-the-counter trading firms for business from institutional and high-net-worth clients.
Such trades occur off an exchange's main order book and are popular among large institutions such as crypto hedge funds and trading firms, which don't want a big trade to impact the market. The trades are common in equity and futures markets, and are mostly conducted by market makers and trading firms in cryptocurrency markets. Gemini announced it was offering block trading to its clients earlier in April.
Coinbase, which first started offering services for institutional Wall Street firms in 2014 via its institutional exchange GDAX, has recently been gunning for business from larger customers in crypto. GDAX is at the core of that mission.
The firm has also announced the launch in late 2017 of Coinbase Custodian, a custodian product for the crypto space which the firm is trying to scale to be the "State Street of cryptocurrency." Such a product would provide additional safeguards for storing crypto.
Coinbase is also hiring a head of market structure to explore new order-types, liquidity incentive programs, and other market safeguards to beef up the exchange. That could help lure in trading firms, and add more liquidity onto the platform, according to Larry Tabb, the founder of consulting firm Tabb Group.
"Those are the things they need to be thinking about," Tabb said in an email to Business Insider. "How do we get Virtu, Citadel, DRW, Susquehanna to make markets," Tabb added. "It's going to be a combination of incentives, order types, connectivity, co-location, and pricing."
Moving to Chi-town
A key component of this expansion appears to be hiring talent from the Wall Street world. Recently, the company brought on Chistine Sandler from Barclays. It also hired Eric Scro from the New York Stock Exchange as its vice president of finance.
The company is also opening an office in Chicago, several people told Business Insider. Chicago, home to CME Group, the Chicago Stock Exchange, and Cboe Global Markets, is full of trading talent. Coinbase's office in Chicago may be up and running by the third quarter of 2018, one person familiar with the firm's plans said. Coinbase already has some staff based in the city including engineers Kyle Kavanagh and David Caseria. The firm right now has temporary office space for staff in Chicago.
Still, the firm has a long way to go before it looks like a traditional equities exchange, according to Lynn Martin, an executive at ICE, the parent company of the New York Stock Exchange.
Martin, the head of data at ICE, told Business Insider that comparing equity exchanges and crypto exchanges is the equivalent of comparing "apples and florescent neon signs."
"You are talking about a market that really was built 225 years ago and has had multiple evolutions as a result of various crises to a very new market, "Martin said. "Crypto markets are very, very new. I like to say the guardrails haven't been found yet in this market. The regulatory framework hasn't been found yet in this market. That's why you don't find institutional users jumping in with feet first yet."
A spokeswoman for Coinbase declined to comment on the company's plans.